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# How Scary Are Subprime Auto Loans?

Unlike subprime mortgages during the financial crisis, they don’t pose a risk to the system.

Perhaps the biggest difference between subprime auto loans and subprime mortgages is that this sort of stress is a familiar story. In the late 1990s, a surge in inexperienced entrants into the subprime auto market led to bad underwriting, sowing the seeds for a bust. Dozens of lenders were acquired, shut down or filed for bankruptcy. At the time, the auto loan cycle didn’t rattle financial markets or cause a massive shock to the economy. It’s unlikely to now.

Seriously, I just Googled “auto loan crisis” and got tons of information. You should try it.

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My point was larger than the auto loans. So I’ll clarify, if a record number of people are that far behind on their car loans, what does that mean for the rest of the their debt

For instance, when tight on money you pay your house first (you need a place to live), car second (you need to get to work), and then everything else right? So a record number of the population isnt able to stay above water, and what are the larger implications to the economy with a record number of people NOT meeting their basic responsibilities? I dont know, but it cant be good, and with a tariff war going, the fed bailing out the bank system aggressively, AND interest rates lowered 2 times in a few months…seems like a lot of ‘unusualy’/'concerning signs tripping in quick secession.

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I don’t have an economic background and I barely play one on the interweb.
Banks are interconnected. We may not have the same derivatives, but the auto loaners may or may not have loans from other banks. It probably doesn’t compare in size to housing or student debt, and it doesn’t compete in priority either.
Ops, you replied with the same idea. Stagnant wages, low inflation and high level of debt is a bad trifecta. To know the influence of that sector, I’d have to know how big it is, and who put the money in.

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Auto Loans are not securitized in the same way that mortgages are, which limits the impact of cascading auto loan defaults on the financial system. There aren’t really any synthetic auto securitizations or risky derivatives built around auto loans.

Also, everyone in the market agrees that autos lose value over time, and that is priced into auto loans and the value of auto loan derivatives. For mortgages, a bunch of investors got it into their head that property values could only rise, which, it turns out, was very wrong.

So this is not great economic news, but not a systemic collapse level issue.

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B and C reflect the same policy objective, for what its worth. As was discussed upthread, the Fed sets targets for rates—actual rates are set through market activity. The feds injection of liquidity into the market was designed to move rates to the desired target.

Markets are complex, but the going theory right now seems to be that liquidity was tight due to a combination of quarterly tax payments by businesses and a new federal bond offerings pulling investor money away from private sector liquidity. Tax rates caused a spike in demand for liquidity, and the availability of federal debt for purchase pulled away some of the supply, leading to a spike in interest rates on Monday.

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Thanks for the info, the few articles i read just mentioned the fed taking the action, and not much on the justification for it.

I cant help but think Perky_Goth is right that it depends on who put the money in. This theory you mentioned is likely right (assuming it came from a sector expert), but then again is it a theory based on confirmation bias, wanting to avert a run, or the simplest cause is likely? I have no idea, but since the last time this occurred was 2008, and the string of the other yellow flags triggered recently makes me more than a little concerned.

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I just try to learn a few things, but I don’t follow the numbers. Maybe I should, and see if I could have some earnings… With a lot of work.
One thing that rubs me the wrong way is post-facto analysis that only applies for that case, but this might indeed be a fairly specific segment where there’s not more data and not a lot of propagation.

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I’ve doing a little more research and found this interesting video which i’m very interested in hearing thoughts on from some of the interweb experts here :)

It sounds like he is describing what we did in 2008 and doing again now is going to create a super problem, if I’m understanding his summary (lots flying over my head).

The guy talking is Donald Amstad, head of investments specialists for Asia, at and a global fund manager that has more than $1 trillion in assets under management in 80 countries. So good credentials, he lays out a very bad situation we’ve cornered our self into.

I also read where Richard Wolff (American structural Economist) is saying its a scary sign that the Fed isn’t providing even any kind official analysis (which fuels the notion that we have a 2008 situation) on why they are pumping in all this money into the system, . He noted it doesn’t help that the usual financial sources are saying all these calming explanations, but oddly familiar with the 2008 situation.

He mentioned we should watch overnight repo rates goes back down to 2 to 2.5%, or is it bouncing around. Or if there is a news blackout, which would be a very bad sign.

Just found the numbers and the thursday infusion looks like it did the job getting us to 1.85%-1.95%

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You seem really invested in digging up evidence that we’re on the brink of a major collapse. Maybe it’s true, but I’m feeling like you have some other agenda here.

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I don’t think there’s anything wrong with keeping an eye on what the Fed and other central banks are doing. But just that, keeping an eye on it, not focusing on central bank actions as a predictor or cause of economic woes. The culprits aren’t hard to find…trade policy, regulatory capture by financial institutions, tax policy that favors the wealthy, bankruptcy codes favoring excessive risk, etc, etc. Don’t need to go looking at central bankers when there’s so many other culprits to focus on.

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The only way to think we’re going to have a repeat of 2008/2009 because of what the Feds are doing today is to really not understand what caused the financial collapses from 2008/2009. It wasn’t really about what they were doing with the rates that caused that mess. It’s what was going on with the securities themselves like say the mortgages.

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I don’t really have the time to watch, but

the FED pumped money post-“collapse”, so it’s not the same situation. As to the explanation itself, you can get something out of what other central bankers are saying: monetary policy isn’t doing much for growth.

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Hiya again Menzo * sigh *,

We’ve had 3 interactions now…and yes, this is also the third time you made assumptions/declarations/judgements about me and my intent…rather than asking me questions or trying to find out what I actually meant to say. I tried to ignore or assume good intentions (with your bad results) the FIRST 2 times, but you seem intent on being wrong yet again on what I mean!

Sooooo maybe just not respond to me…thus avoiding making more of a fool of yourself in assuming things about me that have nothing to DO with me.

Or if you just dislike me and want to insult me…you could at LEAST be in the ball park of correct…how about this…

A few years ago, due to a 3 previous concussions i developed a condition called chronic traumatic encephalopathy (CTE), its actually fairly mild but IT did cost me my career as a engineer at Intel (and the ability to do that job). Now while its otherwise mostly fairly mild impact, it has hindered my ability to process lots of abstract ideas and information at once, have occasional bouts of memory loss, and generally lost a step. So if you want to…call me a brain damaged whatever you like

I mean if you HAVE TO judge and insult me… that at least would be in the ball park of accurate…

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You’re approaching this entire topic like someone who would seek a conspiracy, as in you are looking for content that proves a conspiracy thus running into conspiracy fueled claims instead of reading and analyzing actual data.

This is nothing like 2008/2009. Your best approach is to stop reading about now and spend more time reading about then. Only after reading about what actually happened is it going to be clearer why today is not that.

So top listening to that garbage and divorce yourself from the Chicken Little nonsense.

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Your right, that I’m paying more attention now, and trying to understand more. After all the inverted yield curve has predicted every recession since the 50s.

I understand the lot of things are adding to the current turbulent economy, its the case period, and for each of the previous crashes (lots of factors). So, I’m trying to figure out what factors triggered the inverted yield curve. I mean i know the trade wars are part of it but what else. So, I’m looking for people that have information, and paying attention to whats going on.

Then There was extreme volatility inside the bank funding market this week where the interest to get money for the banks hit 10% which is supposed to be another yellow flag

Then the Fed not only dumped money into that system (the first time since 2008), but dumped the max allowed 75 billion 2 (!!!) times this week and a total of over 200 billion over the week. Which has never been seen before! That’s not normal.

So, yes I’m trying to figure out what this means, and whats causing it, via my limited capacity and asking others to vette information i find to hopefully find some logic in whats going on here, how and when I should protect myself, and gain a greater understanding.

How is my logic flawed (and maybe it is), ive admitted I’ve lost a step, but seems logical to me.

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You’re looking at the reactions while claiming you want to understand the causes, or even claiming you’re seeing the causes. You’re focusing on the wrong things. A few people have already tried to tell you this, but you just keep doing the same thing and then getting irritated or angry at them to the point of telling them off.

I don’t see how you can say you want information, you want to understand and yet you come back here day after day with these strange theories fully, even solely, fixated on what the The Fed is doing. The Fed might explain why they’re doing what they’re doing, and they don’t do it with headlines or clickbait videos, but they are not the cause.

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I would like to dispute your suggestion that you’re “just asking questions.” I believe what is really happening here is you’ve made up your mind and you want someone to confirm your thinking. You don’t seem open in any way to anyone else’s opinion.

So, OK, you’ve decided that we’re about to enter a recession. Stop asking questions and tell us what you’re going to do about it. Are you going to pull your money out of the market? HODL? Build a disaster shelter?

Personally, I can weather even a 2008-esque downturn, so I’m not planning on making any changes.

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Why and how am I focused on the wrong things? inverted yield curve is the wrong thing? or the bail of the market funding?

Only person i got annoyed with is someone who didnt ask questions of me, but just declared he knew my intent…not about discussing the information. but about how I have an agenda. I was even civil to him the first two times, only calling him out (reasonably so the third time).

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That is not a “cause”. Are you looking for causes or are you looking for reactions? You claim you want causes, but what is it you think focusing on the inverted yield curve is going to tell you because again, that is not a “cause.”

To be honest, I have the same question myself.

I think you are convinced that there is a recession coming, a huge one, therefore you go out and seek material validating that position, and then you come here looking for people to explain that validation instead of actually asking opinions about the market and whether not others think a recession is coming.

What I have chosen to focus on though is why someone, anyone would ever think, even remotely believe that the same set of circumstances that pushed us toward recession in 2008 and 2009 could possibly be happening now. My conclusion is there must be a complete lack of understanding of what actually happened in 2008 and 2009 for that to occur. And if you start pointing at what the Fed did and yields, then once again, I am going to point out you are not looking at causes… you are looking at reactions/results if you will, and some of that occurred after the collapse which someone else has also pointed out to you above.

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I’m asking questions from sources that seem legit, the fed isnt really saying anything in this case, Trump is all lies, a lot of the sources have confirmation bias (they want it to be ok, so they look for it to be ok). I’m trying to ask questions and vette, hey this is not a crazy off the wall source, and it seems to explain patterns we are seeing. I’m not super knowledgable, so I AM asking hey give me context to this information that is sourcing a lot of information.

Google search is great for a specific fact, but the complexity of money markets, means you have to have broader experience, education, and in depth knowledge to really understand it. Not just the boiler plate info that we are fed, but figure out the why counter info isnt accurate is also as important as why x y and z are usually accurate (in this arena).